Small manufacturers hit after nine months' growth

Small and medium-sized manufacturers saw their sales stall in the last quarter, it was revealed yesterday, as concerns intensified about the fallout from the credit crunch, oil price increases and the continued high value of the pound.

The CBI's latest quarterly survey of small to medium enterprises revealed demand for their goods flattened after nine months of strong growth. Smaller firms were hardest hit by rising input prices and falling domestic demand. Medium-sized manufacturers also suffered from falling domestic demand but their export orders grew at the fastest pace for 12 years.

The optimism that dominated surveys earlier in the year had largely disappeared, the CBI said. Firms were increasingly pessimistic about the potential for growth over the next year.

The downbeat outlook echoed a survey by the Institute of Directors that found the financial crisis gripping the world's banks had left business leaders more gloomy than in the aftermath of 9/11.

A large and growing proportion of directors were less optimistic about the outlook for investment and the proportion stating their company was performing well slipped to 73% in the latest survey, from 77% previously. Wider surveys of economic activity have shown manufacturing output squeezed by 0.6% in September and service sector expansion slowed to a four-and-a-half-year low in October. Retail sales also slowed last month.